Chevron Settles Brazil Oil Spill Suits

Chevron Corp. and Brazilian regulators have reached a $42 million agreement to settle lawsuits demanding more than $20 billion over procedural lapses leading up to a 2011 offshore oil well rupture. This came after several setbacks for prosecutors in the legal battles that have been going on for years. Under the agreement, Chevron will pay 95.2 million Brazilian reals, or just less than $42 million. Co-defendant Transocean Ltd., which operated the offshore reservoir, was absolved of wrongdoing, and will pay nothing.

The release of about 150,000 gallons of oil in the Frade production reservoir off the coast of Rio de Janiero sparked a major crackdown by the Brazilian government. Two separate lawsuits were filed by a Brazilian federal prosecutor in December 2011 and April 2012. The suits sought to shut down all of Chevron’s operations in the region. Both Chevron and Transocean were ordered to halt their operations in Brazil in August 2012 while the government investigated the two spills, but the shutdown was short-lived. Transocean’s ban was eased later that year when the country’s second-highest court allowed activities to continue on nine of the company’s 10 rigs. Restrictions on Chevron were subsequently overturned by an appellate judge.

Authorities also brought criminal charges against 12 Chevron and five Transocean employees, including Chevron Brasil President George Buck, accusing them of obstructing an investigation of authorities, failing to comply with environmental obligations, submitting a false emergency plan and illicit misrepresentation of documents submitted to authorities. Prosecutors alleged that the workers had created a “long-term contamination time bomb” by utilizing pressure above permissible levels, causing fractures in the rock walls that leaked oil into the sea. They also said Brazil’s National Petroleum Agency, or ANP, had discovered major flaws in the equipment at the spill site, which the office called “evidence of the carelessness of Chevron in drilling the oil wells.”

Chevron and Transocean denied the charges and defended both the working condition of the well and their response to the spill. Chevron also voluntarily suspended production at the Frade field in March 2012 as a precaution after discovering a seep in an area unaffected by the initial spill. The accident was allegedly caused by Chevron’s failure to grasp the geology and fluid dynamics of the reservoir, as well as its delay in responding to the blowout, according to a report by ANP. But the company was authorized to resume production in April, and subsequent evidence unearthed by the ANP indicated the oil release was not as severe as expected.

ANP fined Chevron 35.1 million reals for the initial spill. The company did get a 30 percent discount on the fine for paying promptly. It’s possible that environmental authorities from Rio de Janiero’s municipal government could still go after Chevron.